Proposed Legislation Recognizes Value Over Price for Contractors

SynopsisOn June 22, 2017, Rep. Mark Meadows (R-NC) introduced H.R. 3019, “Promoting Value Based Procurement Act of 2017.” The bill would add limitations under specific conditions to the “best value continuum” that Federal agencies use to make award decisions. With bipartisan support, the bill aligns with new restrictions for LPTA spelled out in the National Defense Authorization Act (NDAA) of 2017, suggesting there could be a major shift away from LPTA contract award decisions.

BackgroundLPTA source selection has been the subject of fierce and ongoing debate since 2011. Under the rubric of “best value” as defined by Federal Acquisition Regulation (FAR) LPTA permits the Government to award contracts to the lowest-price proposal deemed to meet a minimal technical threshold. Executive agencies have increasingly employed LPTA to reducing spending. A GAO report released in 2014 noted that the Department of Defense (DOD) LPTA source selection for contracts over $25 million increased from 26% of all awards in 2009 to 36% in 2013.

This shift has been criticized by many in industry, with experts like Will Goodman of the National Defense Industrial Association claiming that LPTA “reduces the industry’s incentive to innovate and may drive quality suppliers out of the defense marketplace.” Goodman and other critics see LPTA sourcing as dangerous to quality and competition.

Even those supporting the usefulness of LPTA recognize its flaws. Scott Calisti, a senior procurement analyst in the Office of the Under Secretary of Defense (AT&L), notes that “improper use of LPTA for complex products and services can rob DoD of innovations needed to maintain our technological advantage and meet the warfighter’s needs.” DOD contractors, and those who serve civilian agencies, are increasingly viewing LPTA as a channel for sub-par products and services and a strategic liability for the Government.

Rep. Meadows’ bill seeks to mitigate these risks. If passed, it would modify FAR to allow LPTA source selection only in circumstances that meet six criteria, three of which relate to the potential added value of sourcing through methods other than LPTA. A Government agency would not only need to “be able to comprehensively and clearly describe” the “technically acceptable” threshold, but it would be required to assert that it would “realize no, or minimal, value” from a contractor that exceeded the LPTA benchmark. In addition, the Contracting Officer would be required to provide written justification for the use of LPTA in the contract file.

In several situations, the bill would specifically discourage the use of LPTA, urging that, to the maximum extent practicable, it should be avoided for the acquisition of IT services, cybersecurity services, and other professional services including audit and audit readiness, personal protective equipment, and knowledge-based training in contingency operations or other operations outside the United States. Combined with the six general criteria, this represents a significant curtailment of the use of LPTA and sets a high bar for agencies to achieve on a case-by-case basis before employing the controversial source selection tool.

The bill was met with immediate support from the government contracting industry. In a letter sent to Reps Meadows and Beyer on the day the legislation was introduced, Alan Chvotkin of the Professional Services Council endorsed it enthusiastically. He commented that its enactment “would help ensure that Federal agencies have the flexibility necessary to seek and obtain innovative solutions, better outcomes, and, ultimately, the best value on behalf of taxpayers.”

How You Can Use This InformationFor the time being, a shift away from LPTA source selection criteria is not a certainty. It remains to be seen whether it will succeed in the House of Representatives and Senate. Should it become law—which, in our estimation, seems a fair bet given the bill’s bipartisan support and the composition of both bodies of the legislature—this could signal a major change in the way contractors do business. Our advice: Watch the progress of this bill at https://www.congress.gov/bill/115th-congress/house-bill/3019.

What CohnReznick ThinksSimilarly to the experts mentioned above, we appreciate the necessity for a “best value continuum” in making contract award decisions. There may be shift towards best value, but LPTA is not going away anytime soon. Price plays a critical role in virtually all Government awards, especially where value is perceived to be minimal and where agencies are appraised for controlling costs, not enabling innovation.

This new (or long-awaited) re-emphasis on value over price presents an opportunity for innovative contractors. They should continue to differentiate themselves from their competition by demonstrating true value in performance (i.e., unique capacity, innovation, etc.). This means bringing a game-changing idea or concept to the program, leaving no doubt about the value outweighing the costs. Rep. Meadows’ bill urges agencies to closely evaluate whether they are leaving value on the table. Consequently, there is significant opportunity for innovative contractors who can demonstrate that agencies will realize additional value or benefit.